Kautsman et al v. Carrington Mortgage Services LLC et al

Filing 54

ORDER granting Defendant Carrington Mortgage Services LLC's 32 Motion to Dismiss for Failure to State a Claim; dismissing as moot Plaintiffs' 34 Motion to Certify Class; granting Plaintiffs leave to amend complaint to address deficiencies, signed by U.S. District Judge John C Coughenour.(SWT)

THE HONORABLE JOHN C. COUGHENOUR

1
2
3
4
5
6

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

7
8
9

NIKOLAY KAUTSMAN, et al.,

10

Plaintiffs,
v.

11

CARRINGTON MORTGAGE SERVICES,
LLC, et al.,

12

CASE NO. C16-1940-JCC
ORDER GRANTING MOTION TO
DISMISS AND DISMISSING
MOTION FOR CLASS
CERTIFICATION

13
Defendants.

14
15

This matter comes before the Court on Defendant Carrington Mortgage Services, LLC’s

16
17
18
19
20
21
22
23
24
25
26

(“CMS”) motion to dismiss (Dkt. No. 32) and Plaintiffs motion for class certification (Dkt. No.
34). Having considered the parties’ briefing and the relevant record, the Court GRANTS CMS’s
motion to dismiss and DISMISSES as moot Plaintiffs’ motion for class certification for the
reasons explained herein.

I.

BACKGROUND
Plaintiffs are the fee title owners of a single family residence in Redmond, Washington. (Dkt.

No. 44 at 6.) Wilmington Trust (“Wilmington”), is the lender of record, beneficiary of the Deed of
Trust, and holder of a related Secured Promissory Note. (Id. at 7.) CMS services the Note for
Wilmington. (Dkt. No. 44 at 7–8.) The Deed of Trust contains a provision allowing the lender to do
whatever is “reasonable and appropriate to protect the lender’s interest” in Plaintiffs’ residence and
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 1

1

secure it if Plaintiffs “fail[] to perform the covenants and agreements contained in this Security

2

Instrument” or “abandon[] the Property.” (Id. at 7.) The covenants referenced above include

3

Plaintiffs’ agreement to make the timely payment of principal, interest, and late charges. (Dkt. No.

4

44-2 at 3.)

5

Plaintiffs assert CMS directed a related entity, Defendant Carrington Home Solutions L.P.

6

(“CHS”), to enter onto their property and inspect the exterior of the residence without Plaintiffs’

7

permission. (Dkt. No. 44 at 9.) Plaintiffs further assert that after erroneously determining that the

8

property was vacant, CHS broke in, rekeyed the lock, winterized the property, and generally took

9

possession of it. (Id.) All of this occurred despite clear signs that the property was not vacant. (Id.)

10

Plaintiffs further allege that CMS charged them for the inspection and resulting fees by adding the

11

fees to the balance of Plaintiffs’ loan. (Id. at 10.) Plaintiffs allege this is a common practice by CMS

12

and, as such, bring this suit as a class action. (Dkt. Nos. 34 at 1–4, 44 at 2–3.)

13

Plaintiffs brought suit in state court for breach of contract, violations of the duty of good faith

14

and fair dealing, violations of Washington’s Consumer Protection Act (“WCPA”), Revised Code of

15

Washington § 19.86, and negligent supervision. (Dkt. No. 1-2.) CMS removed to this Court and

16

moved for partial judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The Court

17

granted the motion, dismissing some of Plaintiffs’ claims without prejudice. (Dkt. No. 26.)

18

Plaintiffs since filed a second amended class action complaint (Dkt. No. 44).1 The complaint

19

includes additional claims for unjust enrichment and, for the first time, names CHS as Defendant in

20

some of the claims. (Id.) It also alleges additional facts to support previously-asserted claims. (Id.)

21

Lastly, Plaintiffs dropped their negligent supervision claim. The current claims are as follows: breach

22

of contract by CMS (Claim #1); violations of the implied duty of good faith and fair dealing by CMS

23

(Claim #2) (Id. at 8, 16–17); a WCPA violation by CMS and CHS (Claim #3) (Id. at 18–19); another

24

WCPA violation solely by CMS (Claim #4) (Id. at 19); and two instances of unjust enrichment by

25
26

1

Any amendment to a complaint supersedes prior complaints. Lacey v. Maricopa Cnty.,
693 F.3d 896, 925 (9th Cir. 2012). Therefore, this Court will only consider the current complaint.
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 2

1

CMS and CHS (Claims #5 and #6) (Id. at 19–21). Plaintiffs assert the following damages: fees CMS

2

charged against their loan, costs Plaintiffs incurred to replace the lock and reverse CHS’s

3

winterization efforts, and legal consultation fees. (Id. at 10.)

4

Plaintiffs move to certify the matter as a class action pursuant to Federal Rule of Civil

5

Procedure 23(b)(3). (Dkt. No. 34 at 12.) They seek to certify two classes. Plaintiffs define Class I

6

as borrowers for whom CMS or their agents inspected their homes, deemed them to be vacant,

7

engaged in preservation services, such as rekeying and winterization, and charged resulting fees

8

against borrowers’ loans. (Id. at 1.) Plaintiffs define Class II as borrowers for whom CMS or

9

their agents inspected their homes and did not engage in further preservation services, but

10

charged resulting inspection fees against their loans. (Id.) Plaintiffs move to be appointed as class

11

representatives and their counsel as class counsel for each class. (Id. at 1–2.) Defendants oppose

12

certification. (Dkt. No. 49.)

13

II.

DISCUSSION

14

A.

Motion to Dismiss

15

Only CMS moves to dismiss Plaintiffs’ claims. (Dkt. No. 32.) But “[a] [d]istrict [c]ourt

16

may properly on its own motion dismiss an action as to defendants who have not moved to

17

dismiss where such defendants are in a position similar to that of moving defendants.” Abagninin

18

v. AMVAC Chem. Corp., 545 F.3d 733, 743 (9th Cir. 2008) (internal quotations omitted).

19

Therefore, to the extent CMS raises arguments that would also apply to CHS, the Court will

20

consider dismissing claims against CHS.

21
22

1.

Legal Standard: Motion to Dismiss

A defendant may move for dismissal when a plaintiff “fails to state a claim upon which

23

relief can be granted.” Fed. R. Civ. P. 12(b)(6). Under Rule 12(b)(6), the Court accepts all

24

factual allegations in the complaint as true and construes them in the light most favorable to the

25

nonmoving party. Vasquez v. L.A. County, 487 F.3d 1246, 1249 (9th Cir. 2007). However, to

26

survive a motion to dismiss, a plaintiff must cite facts supporting a “plausible” cause of action.
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 3

1

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555–56 (2007). A claim has “facial plausibility”

2

when the party seeking relief “pleads factual content that allows the Court to draw the reasonable

3

inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.

4

662, 672 (2009) (internal quotations omitted). Although the Court must accept as true a

5

complaint’s well-pleaded facts, “conclusory allegations of law and unwarranted inferences will

6

not defeat an otherwise proper motion to dismiss.” Vasquez, 487 F.3d at 1249 (quotation

7

omitted). “Dismissal for failure to state a claim is appropriate only if it appears beyond doubt

8

that the non-moving party can prove no set of facts in support of his claim which would entitle

9

him to relief.” Id. (quotation omitted).

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

2.

Claims #1 and #2: Breach of Contract and Violations of the Implied Duty
of Good Faith and Fair Dealing

Plaintiffs allege that when CHS, on CMS’s behalf, entered their property and took
possession, CMS breached its contract and violated its implied duty of good faith and fair
dealing with Plaintiffs. (Dkt. No. 44 at 15–17.) As a threshold matter, in order to bring contractbased claims, Plaintiffs must plausibly allege privity between themselves and CMS. N.W. Indep.
Forest Mfrs. v. Dept. of Lab. and Industries, 899 P.2d 6, 9 (Wash. App. 1995). Wilmington is the
lender of record. (Id. at 7.) Nevertheless, Plaintiffs argue they have alleged sufficient facts to
survive a 12(b)(6) motion. (Dkt. No. 47 at 3–5.)
Plaintiffs’ theory of privity is that CMS, as a result of the compensation arrangement
between Wilmington and CMS, holds a portion of Wilmington’s Note as an assignee. (Dkt. No.
44 at 8, 15-16; Dkt. No. 47 at 3–4.) Because CMS retains various rights to modification fees,
mortgagor-contracted fees, and float on payments it collects on Wilmington’s behalf, it is “an
assignee of a portion of the Loan.” (Dkt. No. 47 at 3.) The Court disagrees. Even if CMS were an
assignee, that assignment would relate only to the relevant portion of the Note—the holder’s
right to payments. (Dkt. No. 44 at 6–7, 16–17.) The preservation rights described in the Deed of
Trust are separate from any right to payment that may have been assigned to CMS. See
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 4

1

Architectural Woods, Inc. v. State, 562 P.2d 248, 248 (Wash. 1977) (allowing for partial

2

assignment of contract rights). And Plaintiffs fail to plead sufficient facts to support assignment

3

of the Deed of Trust. Nor do they provide other legal authority supporting privity with

4

Defendants. Therefore, they fail to satisfy the pleading standard under Iqbal. 556 U.S. at 681.

5

The Court GRANTS CMS’s motion to dismiss Claims #1 and #2. The dismissal is

6

without prejudice. Plaintiff may again attempt to plead sufficient facts to demonstrate privity.

7

See Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (“court should grant leave to amend . . .

8

unless it determines that the pleading could not possibly be cured by the allegation of other

9

facts.”).

10
11

3.

Claims #3 and #4: Violations of the WCPA

Plaintiffs next allege that when CMS instructed CHS to inspect their property, CMS did

12

so with the ultimate intent to deceive Plaintiffs into believing that they were rightfully

13

dispossessed of their property (Claim #4). (Dkt. No. 44 at 19.) They further assert this was a

14

“common practice” of CMS resulting from a “policy . . . devised at the highest level of

15

management and ownership.” (Id. at 10.) Plaintiffs also assert that when CHS changed the lock

16

and winterized Plaintiffs’ property, both CMS and CHS attempted to unlawfully deceive

17

Plaintiffs into believing they were rightfully dispossessed (Claim #3). (Id. at 18–19.) Plaintiffs

18

allege these practices violate the WCPA. (Id.)

19

A properly plead WCPA violation requires facts demonstrating the following elements:

20

(1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) that impacts the

21

public interest, (4) that causes injury to the Plaintiffs’ business or property, and (5) causation.

22

Hangman Ridge Training Stables v. Safeco Title Ins. Co., 719 P.2d 531, 533 (Wash. 1986). CMS

23

asserts Plaintiffs failed to adequately plead the first element for Claims #3 and #4—an unfair or

24

deceptive act or practice. (Dkt. No. 32 at 9–12.)

25

An act is per se unfair or deceptive if it violates a statute that declares the conduct at issue

26
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 5

1

to be unfair or deceptive. Hangman Ridge, 719 P.2d at 535. Otherwise, “a plaintiff must show

2

the conduct is ‘unfair’ or ‘deceptive’ under a case-specific analysis of those terms.” Mellon v.

3

Regl. Tr. Services Corp., 334 P.3d 1120, 1126 (Wash. App. 2014). For claims of deception, this

4

requires showing “a ‘representation, omission or practice that is likely to mislead’ a reasonable

5

consumer.” Panag v. Farmers Ins. Co. of Wash., 204 P.3d 885, 895 (Wash. 2009) (quoting Sw.

6

Sunsites, Inc. v. Fed. Trade Comm’n, 785 F.2d 1431, 1435 (9th Cir.1986)).

7

CMS asserts that Plaintiffs allege neither a per se violation nor a factually deceptive

8

practice for either WCPA claim. (Dkt. No. 32 at 10–11.) Plaintiffs respond that the conduct at

9

issue for both claims is factually deceptive. (Dkt. No. 47 at 6–7.) Plaintiffs rely in part on Jordan

10

v. Nationstar Mortg., LLC, 374 P.3d 1195, 1200–02 (Wash. 2016). In Jordan, the court held that

11

entry provisions contained in a Deed of Trust allowing a lender to take possession prior to

12

completing a foreclosure action were counter to state law and, therefore, unenforceable. Id. at

13

1202. As a result, changing the locks on a home and forcing the homeowner to contact the loan

14

service provider for a lockbox code in order to gain entry amounted to unlawful possession by

15

the loan servicer. Id. at 1201. While Jordan supports the notion that some of Defendants’

16

activities were unlawful, it does not necessarily support a claim based on a WCPA violation. A

17

WCPA violation requires an unfair or deceptive practice, not simply an impermissible one. Had

18

Plaintiffs alleged trespass, for instance, Jordan would be more useful.

19

Plaintiffs allege that by rekeying and winterizing the residence, CMS and CHS could

20

have deceived Plaintiffs into believing they no longer had rightful possession of the property,

21

even though foreclosure proceedings had not been completed (Claim #3). (Dkt. No. 44 at 9–10,

22

18.) The contention is implausible, in light of the language in the Deed of Trust indicating that

23

the holder retains the right, not conditioned on commencing foreclosure proceedings, to protect

24

its investment in the case of default. (Dkt. No. 44-2 at 6.) Specifically-authorized actions include

25

“entering the Property to . . . change the locks . . . drain water from pipes . . . .” (Dkt. No. 44-2 at

26

6.) Similarly, if the Deed of Trust put Plaintiffs on notice that the holder could enter the property,
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 6

1

it provided Plaintiffs notice that the holder may first inspect the property to determine its

2

condition (Claim #4). Nor do Plaintiffs make any other allegations containing specific facts to

3

support an inference of deceptive or unfair conduct. Instead, they make conclusory allegations

4

insufficient to meet their pleading standard under Iqbal, 556 U.S. at 681. (See Dkt. No. 44 at 18)

5

(suggesting that “Defendants’ acts or practices are unfair and deceptive, and have the capacity to

6

be deceptive, though both misrepresentations and withholding of material information” yet

7

failing to include any misrepresentations or withholding of information by Defendants).

8
9
10
11

The Court GRANTS CMS’s motion to dismiss Claims #3 and #4. The claims are
dismissed as to both CMS and CHS without prejudice.
4. Claims #5 and #6: Unjust Enrichment
Finally, Plaintiffs allege that CMS and CHS were unjustly enriched when CMS charged

12

property inspection fees (Claim #6) and any other fees it paid to CHS for lock rekeying,

13

winterization, and other services (Claim #5). (Id. at 19–20.) “Three elements must be established

14

for unjust enrichment: (1) there must be a benefit conferred on one party by another; (2) the party

15

receiving the benefit must have an appreciation or knowledge of the benefit; and (3) the

16

receiving party must accept or retain the benefit under circumstances that make it inequitable for

17

the receiving party to retain the benefit without paying its value.” Dragt v. Dragt/DeTray, LLC,

18

161 P.3d 473, 482 (Wash. App. 2007).

19

CMS asserts Plaintiffs neither establish conferment of a benefit nor a resulting inequity.

20

(Dkt. No. 32 at 8–9.) As to the claims against CMS, the Court agrees and resolves the issue

21

based solely upon whether a benefit was conferred. Plaintiffs have plead that the fees at issue

22

were added to the outstanding loan balance, but have not asserted they ever paid these amounts

23

to CMS. (Dkt. No. 44 at 19–21.) Therefore, Plaintiffs fail to adequately plead that they conferred

24

a benefit to CMS. As to the claims against CHS, Plaintiffs did plead that payment was made by

25

CMS to CHS for rekeying, winterization, and other services (Claim #5). But Plaintiffs fail to

26
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 7

1

allege that it would be inequitable for CHS to retain the payments from CMS. The Court cannot

2

plausibly infer, even construing the facts presented in the complaint in the most favorable light to

3

Plaintiffs, that the compensation arrangement between CMS and CHS is inequitable. Therefore,

4

Plaintiffs fail to satisfy the relevant pleading standard. Iqbal, 556 U.S. at 681.

5

The Court GRANTS CMS’s motion to dismiss Claims #5 and #6. The claims are

6

dismissed as to both CMS and CHS without prejudice.

7

III.

CONCLUSION

8

For the foregoing reasons, Defendant CMS’s motion to dismiss (Dkt. No. 32) is

9

GRANTED and Plaintiffs’ motion for class certification (Dkt. No. 34) is DISMISSED as moot.

10

The Court grants Plaintiffs leave to amend their complaint to address the deficiencies identified

11

above. If Plaintiffs choose to do so, they must do so within thirty (30) days of the date of this

12

Order.

13

DATED this 2nd day of October 2017.

A

14
15
16

John C. Coughenour
UNITED STATES DISTRICT JUDGE

17
18
19
20
21
22
23
24
25
26
ORDER GRANTING MOTION TO DISMISS AND
DISMISSING MOTION FOR CLASS
CERTIFICATION
C16-1940-JCC
PAGE - 8